CINGULATE INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company using our proprietary Precision Timed ReleaseTM (PTRTM) drug delivery platform technology to build and advance a pipeline of next-generation pharmaceutical products designed to improve the lives of patients suffering from frequently diagnosed conditions characterized by burdensome daily dosing regimens and suboptimal treatment outcomes. We are initially focusing our efforts on the treatment of Attention Deficit/Hyperactivity Disorder (ADHD). Our PTR platform incorporates a proprietary Erosion Barrier Layer (EBL) designed to allow for the release of drug substance at specific, pre-defined time intervals, unlocking the potential for once-daily, multi-dose tablets. We believe there remains a significant, unmet need within the current treatment paradigm for true once-daily ADHD stimulant medications with lasting duration and a superior side effect profile to better serve the needs of patients throughout their entire active-day.
Since inception in 2012, our operations have focused on developing our product
candidates, organizing and staffing our company, business planning, raising
capital, establishing our intellectual property portfolio and conducting
clinical trials. We do not have any product candidates approved for sale and
have not generated any revenue. We have funded our operations through public and
private capital raised. Cumulative capital raised from these sources, including
debt financing, was approximately
We have incurred significant losses since our inception. Our ability to generate
product revenue sufficient to achieve profitability will depend on the
successful development and commercialization of one or more of our product
candidates. Our net losses were
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We expect to continue to incur significant expenses and increasing operating losses in the near term. We expect our expenses will increase substantially in connection with our ongoing activities, as we:
? seek regulatory approval for CTx-1301;
? continue research and development activities for our existing and new product
candidates, primarily for CTx-1301;
? manufacture supplies for our preclinical studies and clinical trials,
primarily for CTx-1301;
? outsource commercial infrastructure to support sales and marketing for
CTx-1301; and
? operate as a public company.
As of
Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.
Clinical and Business Update
We executed a master services agreement (MSA) in 2022 with Societal CDMO, Inc.
(Societal), a contract development and manufacturing organization (CDMO)
dedicated to solving complex formulation and manufacturing challenges primarily
in small molecule therapeutic development. Societal will manufacture all
clinical, registration, and commercial batches of our lead ADHD candidate,
CTx-1301. Societal will dedicate a specific manufacturing suite within its
CTx-1301: We have designed our clinical program for CTx-1301
(dexmethylphenidate), our lead investigational asset for the treatment of ADHD,
based on
We initiated a Phase 3 adult dose-optimization study in
In addition, the CTx-1301 Phase 3 fixed-dose pediatric and adolescent safety and efficacy study is expected to commence in mid-2023; results are expected in the first quarter of 2024.
In order to meet the pharmacology requirement for the CTx-1301 New Drug Application (NDA) submission, we completed a food effect study in October of 2022, which demonstrated that CTx-1301 can be taken with or without food.
Assuming we receive positive clinical results from our Phase 3 trials, we expect to submit the NDA for CTx-1301 in the first half of 2024 under the Section 505(b)(2) pathway.
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CTx-2103: We have embarked on a program to develop CTx-2103 (buspirone) for the
treatment of anxiety, which is the most common mental health concern in the
CTx-1302: We plan to initiate a Phase 1/2 bioavailability study in ADHD patients for CTx-1302 (dextroamphetamine), our second investigational asset for the treatment of ADHD, in mid-2024 and, if the results from this study are successful, subsequently initiate pivotal Phase 3 clinical trials in all patient segments in late 2024 or early 2025.
PTRTM Platform: We continue to evaluate opportunities to out-license our PTR
platform and to license our product candidates outside of
Debt Financing
We received
Components of Operating Results
Revenue
Since inception, we have not generated any revenue and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration of license agreements.
Operating Expenses
Research and Development Expenses
Research and development expenses consist of costs incurred in the discovery and development of our product candidates, and primarily include:
? expenses incurred under third party agreements with contract research
organizations (CROs), and investigative sites, that conducted or will conduct
our clinical trials and a portion of our pre-clinical activities;
? costs of raw materials, as well as manufacturing cost of our materials used in
clinical trials and other development testing;
? expenses, including salaries and benefits of employees engaged in research and
development activities;
? costs of manufacturing equipment, depreciation and other allocated expenses;
and
? fees paid for contracted regulatory services as well as fees paid to
regulatory authorities including the FDA for review and approval of our
product candidates.
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We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued costs.
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue clinical development for our product candidates. As products enter later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Historically, our research and development costs have primarily related to the development of CTx-1301. As we advance CTx-1301, CTx-1302, and CTx-2103, as well as identify any other potential product candidates, we will continue to allocate our direct external research and development costs to the products. We expect to fund our research and development expenses from our current cash and cash equivalents and any future equity or debt financings, or other capital sources.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for our employees in administrative, executive and finance functions. General and administrative expenses also include professional fees for legal, accounting, audit, tax and consulting services, insurance, office, and travel expenses.
We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our growing operations including the potential commercialization of our product candidates. We have experienced, and will continue to experience, increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services; director and officer insurance; and investor and public relations costs.
Interest and other income (expense), net
Interest and other income (expense), net consists of interest expense on our related party notes payable and interest earned on our cash and cash equivalents, including money market funds. The primary objective of our investment policy is liquidity and capital preservation.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, we believe the following accounting policies are those most critical to the judgements and estimates used in the preparation of our consolidated financial statements.
Research and Development Costs
Research and development costs are expensed as incurred and include all direct and indirect costs associated with the development of our product candidates. These expenses include payments to third parties for research, development and manufacturing services, personnel costs and depreciation on manufacturing equipment. At the end of the reporting period, we compare payments made to third party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to service providers and the progress that we estimate have been made as a result of the service provided, we may record net prepaid or accrued expense relating to these costs.
98 Stock-Based Compensation
Under our 2021 Omnibus Equity Incentive Plan, we granted non-qualified stock
options to certain employees and directors in 2022 and 2021. The options were
granted with strike prices ranging from
We recorded stock-based compensation expense of
See footnote 11 to our consolidated financial statements for the assumptions that were used to estimate the fair value of stock options granted using the Black-Scholes option pricing model.
Results of Operations
Comparison of the years ended
The following table summarizes our results of operations for the years endedDecember 31, 2022 and 2021: Year ended % December 31, Increase Increase (in thousands) 2022 2021 (Decrease) (Decrease) Operating Expenses: Research and development$ 8,995 $ 8,410 $ 585 7.0 % General and administrative 8,507 12,269 (3,762 ) (30.7 )% Loss from operations (17,502 ) (20,679 ) (3,177 ) 15.4 % Interest and other income (expense), net (174 ) (31 ) 143 461.3 % Net Loss$ (17,676 ) $ (20,710 ) $ (3,034 ) 14.6 %
Research and development expenses
The following table summarizes our research and development expenses for the
years ended
Year ended %
December 31, Increase Increase
(in thousands) 2022 2021 (Decrease) (Decrease)
Clinical operations $ 3,534 $ 1,086 $ 2,448 225.4 %
Drug manufacturing and
formulation 2,840 1,429 1,411 98.7 %
Personnel expenses 2,521 5,874 (3,353 ) (57.1 )%
Regulatory costs 100 21 79 376.2 %
Total research and development
expenses $ 8,995 $ 8,410 $ 585 7.0 %
Research and development (R&D) expenses were
99
General and administrative expenses
The following table summarizes our general and administrative (G&A) expenses for
the years ended
Year ended %
December 31, Increase Increase
(in thousands) 2022 2021 (Decrease) (Decrease)
Personnel expenses $ 2,590 $ 9,729 $ (7,139 ) (73.4 )%
Legal and professional fees 2,233 1,443 790 54.7 %
Occupancy 478 484 (6 ) (0.01 )
Insurance 2,611 325 2,286 703.4 %
Other 595 288 307 106.6 %
Total general and administrative
expenses $ 8,507 $ 12,269 $ (3,762 ) (30.7 )%
Total G&A expenses were
Interest and other income (expense), net
The following table summarizes interest and other income (expense), net for the
years ended
Year ended %
December 31, Increase Increase
(in thousands) 2022 2021 (Decrease) (Decrease)
Interest and other income (expense), net $ (174 ) $ (31 ) $ 143 461.3 %
Total interest and other income (expense), net in both 2022 and 2021 primarily
relates to interest incurred on outstanding notes payable, offset by interest
earned on invested balances. Interest expense was significantly higher in 2022
due to
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Cash Flows
Year ended
December 31,
2022 2021
Net cash (used in) operating activities $ (15,882 ) $ (10,432 )
Net cash (used in) investing activities (153 ) (815 )
Net cash provided by financing activities 4,899 26,542
Net increase (decrease) in cash and cash equivalents
Cash Flows from Operating Activities
Net cash used in operating activities was
Net cash used in operating activities was
Cash Flows from Investing Activities
Net cash used in investing activities for both the years ended
Cash Flows from Financing Activities
Net cash provided by financing activities in the year ended
Net cash provided by financing activities in the year ended
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Liquidity and Capital Resources
Sources of Liquidity
Since our inception in 2012 through
In
Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity while producing a modest return on investment. Accordingly, our cash equivalents are invested primarily in money market funds which are currently providing only a minimal return given the current interest rate environment.
We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for our product candidates, we will incur significant sales, marketing and outsourced manufacturing expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including personnel to support our planned product commercialization efforts. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to us as a public company.
Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:
? the cost and timing of manufacturing the clinical supply of our product
candidates;
? the initiation, progress, timing, costs and results of clinical trials for our
product candidates;
? the clinical development plans we establish for each product candidate;
? the number and characteristics of product candidates that we develop or may
in-license;
? the terms of any collaboration or license agreements we may choose to execute;
? the outcome, timing and cost of meeting regulatory requirements established by
the FDA or other comparable foreign regulatory authorities;
? the cost of filing, prosecuting, defending and enforcing our patent claims and
other intellectual property rights;
? the cost of defending intellectual property disputes, including patent
infringement actions brought by third parties against us;
? the cost and timing of the implementation of commercial scale manufacturing
activities; and
? the cost and timing of outsourcing our commercialization efforts, including,
sales, marketing and distribution capabilities for any product candidates for
which we may receive regulatory approval in regions where we choose to
commercialize our products.
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To continue to grow our business over the longer term, we plan to commit
substantial resources to research and development, including clinical trials of
our product candidates, and other operations and potential product acquisitions
and in-licensing. We have evaluated and expect to continue to evaluate a wide
array of strategic transactions as part of our plan to acquire or in-license and
develop additional products and product candidates to augment our internal
development pipeline. Strategic transaction opportunities that we may pursue
could materially affect our liquidity and capital resources and may require us
to incur additional indebtedness, seek equity capital or both. In addition, we
may pursue development, acquisition or in-licensing of approved or development
products in new or existing therapeutic areas or continue the expansion of our
existing operations. Accordingly, we expect to continue to opportunistically
seek access to additional capital to license or acquire additional products,
product candidates or companies to expand our operations, or for general
corporate purposes. Strategic transactions may require us to raise additional
capital through one or more public or private debt or equity financings or could
be structured as a collaboration or partnering arrangement. We have no
arrangements, agreements, or understandings in place at the present time to
enter into any acquisition, licensing or similar strategic business transaction.
In
If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our existing stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.
Contractual Obligations
The following summarizes our contractual obligations as of
We entered into a patent and know-how licensing agreement with
We entered into an agreement with a CRO for the Phase 3 adult dose-optimization,
onset and duration study for CTx-1301, which was initiated in
103 Going Concern
Since inception we have been engaged in organizational activities, including
raising capital and research and development activities. We have not generated
revenues and have not yet achieved profitable operations, nor have we ever
generated positive cash flow from operations. There is no assurance that
profitable operations, if achieved, could be sustained on a continuing basis. We
are subject to those risks associated with any pre-clinical stage pharmaceutical
company that has substantial expenditures for research and development. There
can be no assurance that our research and development projects will be
successful, that products developed will obtain necessary regulatory approval,
or that any approved product will be commercially viable. In addition, we
operate in an environment of rapid technological change that is largely
dependent on the services of our employees and consultants. Further, our future
operations are dependent on the success of our efforts to raise additional
capital. These uncertainties raise substantial doubt about our ability to
continue as a going concern for one year after the issuance date of our
financial statements. The accompanying consolidated financial statements have
been prepared on a going concern basis. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the company to
continue as a going concern, which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. We have incurred a net loss for the years ended
Recently Issued Accounting Standards
In
JOBS Act
On
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Subject to certain conditions set forth in the JOBS Act, as an "emerging growth
company," we are not required to, among other things, (i) provide an auditor's
attestation report on our system of internal controls over financial reporting
pursuant to Section 404, (ii) provide all of the compensation disclosure that
may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any
requirement that may be adopted by the
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